When a Bank Fails - Facts for Depositors, Creditors, and Borrowers 1
What happens to my loan now that my bank has failed?
Either the FDIC sold your loan at closing or the FDIC has retained it temporarily.
In either case, your obligation to pay has not changed. Within a few days
after the closure, you will be notified by the FDIC, and by the purchaser,
as to where to send future payments.
In the case of a delinquent loan, the FDIC will “set off” the
loan against the borrower’s deposits (if any) before paying deposit
insurance. In the case of a non-delinquent loan, the depositor might elect
to “set off” the loan against his/her deposits in order to receive
full value for any uninsured funds (i.e., funds in excess of the $250,000
insurance limit). In either case, no “offset” is possible unless
the obligations are “mutual” – meaning that the borrower
and the depositor must be the same person or legal entity acting in the
same legal capacity.
What happens if the FDIC sells my loan?
Loans are negotiable instruments that are routinely sold in the financial
markets. When a loan is sold, the borrower retains all the rights and obligations
associated with the note. The borrower will be notified by the new holder
of the note and given payment instructions.